What does it really mean to be profitable?
With my newly-minted certification as a Profit First Professional coach (huzzah!), I've spent more than a few hours thinking about this question.
Profit First is a concept (and now a book) penned by business author (and my friend) Mike Michalowicz. The book drives home the point that most business owners make profitability an event (or worse, an afterthought), rather than a habit. Mike says "Shouldn't your profit come first?"
In fact, even a "for-purpose organization" (a term my friend Doug uses for non-profits) needs to generate positive cash flow in order to be sustainable.
Yet, so often, people bent on making a positive difference in the world think that focusing on profits is "icky".
There's a good reason for the ick. It stems from a very dismpowering definition of the word "profit". Let me explain...
Here's how we typically define "profit" today - courtesy of our friends at Google. The idea of "more" for the sake of more can leave heart-centered entrepreneurs feeling icky. We're not trying to get "more" all the time - especially not at the expense of people. Neither are trying to take advantage of others - or be taken advantage of ourselves! Yet the top two definitions of the word "profit" relate specifically to those two concepts:
For most of us, the word "profit" is synonymous with the word "money". They think about "rakin' in the dolla bills" and then rolling around in a pile of money like Scrooge McDuck. It's the "bottom line" of the balance sheet. It's the account balance, the number that's left at the end of the month when all the bills are paid - and before the next bill comes due.
Evil empires have hoarded it, conquered for it, and some companies have been built to focus on it (and only it) relentlessly.
No wonder we get all icky inside just thinking about it. After all, we're here to make a difference, to make a positive impact on the world. We want to make people happy, bring them joy, ease their pain, and we put the welfare of people ahead of money money.
We want to do good things, and all that ick, can't be good, can it?
We get mixed messages: loving money is the root of all evil, yet it makes the world go 'round.
Ah money, why do you vex us so?
What if profit had a wider, more holistic definition? Or is that too much of a stretch for you?
The funny thing is that if you look at the origins of the word, you'll see that it's not really about money at all. Dating back to its Latin roots, the word "profit" was really about making progress: advancing toward your goals or dreams, in a way that would make your situation better. Even moving into Old French and Middle English, the word still represented a fairly positive outlook - to benefit, or have an advantage - not to take advantage (or be taken advantage of), but to be in an advantageous position.
How did we so bastardize this word that it's become synonymous with money and - in some circles - considered an evil word?
The Profit Problem
For the past couple of years, I've taken a different approach to profitability. When you are the face of your company, when your business is an extension of who you are, it's not so easy to separate money from all the other moving parts of your business (or even your life). In fact, my own coach uses an analogy she calls the Wheel (WEAL) of Abundance - that illustrates how money is actually the tire around the wheel and keeps everything rolling.
When money is so intertwined with all the other parts and pieces of life and business, profit is less about just the money you've invested, and more about the overall investment: time, energy and money.
You've heard the phrase "more time than money", right?
I meet a lot of entrepreneurs in this energetic space, cashing in every spare moment on DIY business projects trying to get their business off the ground. It becomes a vicious cycle. All that time and energy invested usually generates a positive financial return - but at great cost to their personal lives (and sometimes their health, too!).
You work 30-40 hours per week at your day job, then put in countless hours on evenings and weekends and FINALLY, launch an offering into the world that works! Money's coming in. But in order to keep it coming in, you have to keep sacrificing time and energy you would otherwise invest in the other Key Areas of Success. It feels like you just can't keep up.
So things start sliding. Family dinners become hit-and-run meals. Not just occasionally, but regularly. The kids forget what you look like, and maybe even start calling the babysitter "Mom" by mistake. Friends stop calling because you're always busy.
Note: Every entrepreneur I've ever talked to shares stories of pulling all-nighters in order to get a project in on time. An occasional all-nighter is not the issue. It's when that behavior becomes the norm that things are out of control.
What about "more money than time"?
Most people will tell you there's no such thing. It's more likely to be "some money and very little time." This is probably the second most common type of entrepreneur I've met - because it's usually the next evolution of the "more time than money" folks.
You start bringing in some consistent money, you're worried about how much time you're plowing in, but you can't slow down now! Things are finally starting to pick up momentum. You keep telling yourself it's just a little bit longer. Just one more client, just one more project, then you'll get some sleep, spend more time with the kids, and take that vacation you finally have the money (but no time) for.
I worked with a client who hardly slept. She led a large sales organization and had her own clients to serve as well. She'd be up at 5 or 6 in the morning, work all day with her sales team, nap for about an hour, then go back at it until dinner time - when she'd hurry up and eat so she could drive to her evening client appointments, then get back home and field more calls and emails from her sales team until about 2 in the morning. Then, she'd go to sleep and do it all over again the next day. She was exhausted. She was making six figures, and she had no time to live or enjoy her life.
She was doubtful things could change - after all, she'd been doing it for a while now and it seemed like the only way to keep things working. She was making money, and by the "Profit 1.0" definition, she was very profitable. She barely put any money into her business, and was pulling in a lot of money each month.
...and she was miserable.
Among other things, I showed her how to empower her growing sales team to handle some of the training and FAQ-type questions without her needing to be "on" all the time. In less than 3 months, she freed up enough time to get on a regular sleep schedule - and actually DOUBLED her six figure income!
These are the folks who've finally realized that they can't do it all by themselves - in fact, they're going to go crazy trying to figure it out all by themselves. They need to stop being the bottleneck, but there are so many places that need attention now, they don't know where to start!
So this "new" definition of profitability is actually more of a return to the ancient definition: it's about progress toward what really matters. More time, more freedom, and yes, more money to invest on what really matters. It's about seeing a positive return on everything you invest: time, energy, and money.
Here's a quick example:
Let's say you invest 2 hours working on a project - and it's tough work. You're sweating bullets through the whole thing, really putting a lot of energy into that project, and the client is very demanding. Then, you sell that project for $500 (after expenses), which means you earned a financial profit of $250 per hour. Time to celebrate, right? Woo hoo! $250 an hour, baby!
But $250 per hour doing difficult work feels different than $250 per hour doing easy work, doesn't it? Which means there's also an energetic investment needs to be considered. Granted, it's hard to calculate on a balance sheet, but it becomes very apparent in how you show up in the hours and days after the project is sold - are you more cranky, irritable? Then it was an energetic investment against the financial profit. Are you lighter, more engaged, and generally happier? Then there was an energetic profit.
And what about your time? Maybe you invested two hours on a project that should have only taken one (because your customer is demanding, remember?), in which case, there's a time investment against the financial profit. On the other hand, maybe you completed the project ahead of schedule and you've got some spare time on your hands. That means, there's a time profit. And if this project was a "set is and forget it" project - something you could do once and profit from again and again (like an album), then you've got a recurring time profit. The other way to look at the time factor is what you had to give up in order to say yes to this project. If you had to skip date night with your hubby to get those two hours in, not only do you have the 2 hours in the project work, but also the time lost because you couldn't be with your spouse.
All of this may seem like semantics, but I see it play out time and again with clients. When they've got a positive return on time, energy, and money, they are content with what's going on in their life and work - even if they're not making millions. But when one element of Profit 2.0 starts becoming a drain, that's when anger, resentment, disgust, dissatisfaction, desperation all start rearing their ugly heads.
Can you remember a time when:
- the money was good but the work was an emotional or time drain (or both)?
- you said "no amount of money is worth THIS!" when a client made "unreasonable" demands?
- you did great work, got great recognition for it, felt great about it but didn't get paid what you thought it was worth?
- you felt great about the work, got paid really well for it, but weren't able to be there for your family when it mattered most?
THAT is what Profit 2.0 is all about: having a positive return on your time, energy, AND money investment.
Profit 2.0 happens when your 5 Key Areas of Success are in balance, which doesn't always look like the equally-leveled scales of justice. Just as often, it looks like spinning plates, or rhythmic juggling. I'm considering leading a workshop around this concept later this year, or early next. If you're interested, please leave a comment below and let me know your stories of when the total profitability (time, energy, and money) was out of whack in your work. Also, any questions you've got about how it works, I'm glad to answer as well!